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17/02/2009
The view from the floor
As new business manager at Auction Finance Limited, Scott Hendry attends between 20 and 30 property auctions every month including sales held by some of the largest auction houses in the country. He talks to Estates Review about what has been happening in the nation’s auction rooms during the past 12 months
It’s incredibly difficult to make any generalisations about how the auction market is performing at the moment. In the midst of the credit crunch it is easy to become downcast when comparing auction results from this time last year, but after a traditionally quiet August some things I have witnessed in the past few weeks indicate that improved stability and activity might not be far away.
Changes for the better
The first half of 2008 saw London auctions driving the market whilst other regions suffered. The reasons for this were fairly self evident. The London auction houses have bigger sales with a national coverage and an established clientele of wealthy investors. Sales were stronger, both in terms of volumes and the prices obtained, and we frequently saw investors who had travelled to London for an auction losing out in the room simply because they weren’t prepared to bid up to the levels required. However, over the past six months, the disparity in performance between sales in the capital and those in the provinces has all but disappeared. For example, only last week I attended a small but established auction in the North West where the sale room was full and very active. This means that although in the earlier part of the year a motivated vendor may have done well to look to the London auction houses, there is currently a good argument for selling through a local sale room where the bidders are educated about the local market.
There are several factors that have contributed to this levelling of the playing field and the much touted rise in repossessions is one of them. Whilst repossessed properties would historically have found their way into larger auctions, the volumes that are now hitting the market mean that smaller auction houses are also picking up a quota. Although repossession is never something to smile about, auctioneers know that having repossessed properties in their catalogue is a good way to draw serious investors to a sale, and for most of them it is working.
Two other elements that have impacted on overall sales performance during the year and which are now showing signs of improvement are how vendors set their reserves and how auction houses set their guides. For too long a lot of private vendors at regional auctions were not prepared to accept that they couldn’t fix their prices at the same levels as late 2007. It has taken time for this trend to correct itself, but it’s beginning to happen. The fact of the matter is that even in the current market any property can be sold if the price is right and many auction houses are now being much more active when it comes to educating their vendors on what constitutes a realistic reserve price. It tends to be these auction houses whose results are leading the field and at auctions where private sellers aren’t setting sensible reserves the investors in the room quickly cotton on, favouring the repossessed lots that are more likely to be obtained for a good reduction on open market value.
As indicated above, Auction Finance Limited has seen a similar trend with regards to how auction houses handle guide prices. Whilst I personally never rely on guide prices as an indication of what will happen in the room, these are definitely becoming more realistic. There are still some sales where lots remain unsold despite bids coming in well over the guide, but these instances are much less prevalent than they were earlier in the year.
The funding issue
Now that some realism has returned and the auction rooms are once again looking like a good source of below market value property, the single most important issue that will continue to affect the market is the availability of refinancing facilities for those who are in a position to make acquisitions.
Shortly after the credit crunch hit it was the initial funds for completion that many investors struggled with. “Hunting Licences” (where a rapid draw-down facility is agreed by gearing against the equity in an existing portfolio) were never particularly popular with the banks and were frequently subject to reductions and withdrawals when the current economic difficulties began to surface. Even in circumstances where a facility could be agreed, the speed at which the funds were advanced suffered, meaning that they were often unavailable within the kind of timescales required for auction completions. Auction Finance Limited also encountered numerous auction buyers whose capacity to acquire new property was hampered by their reliance upon traditional mortgage products to provide the funds for completion, sourced either from high-street lenders or via finance brokers. When the reduction in the number of mortgages on the market began to gather pace this approach was no longer a viable option and it was not uncommon for us to receive panic calls from investors whose usual funding line had let them down at the last minute.
Committed investors have overcome these issues via the use of bridging/auction finance to provide the capital for completion but refinancing remains difficult for many, especially those who are buying well below market value and need to refinance at full market value within three months to maximise the profitability in their acquisition. Although there are still facilities out there for buyers with larger portfolios, our experience is that smaller investors and those with imperfect credit records find that their options are currently very limited. In a market where churning properties for capital gains is an incredibly risky business it is vital that these products are accessible in order to make deals workable and attractive.
Despite these difficulties, the auction rooms are becoming busier. The rise in repossessions and increased demand for rentals coupled with early indications that the housing market could be nearing a floor means that the serious investors are back in the room and taking an interest. Over the past few months we have started to receive funding enquiries from clients who went quiet at the beginning of the year and at sales throughout the country I’ve spoken with people who have said they are in the process of arranging funding lines and liquidising assets with a view to bidding heavily as soon as they think the housing market has bottomed out. Many auctions are much busier than they were several months ago, not just with spectators, but with people carrying paddles. This tells me they are registered and ready to bid, which bodes well for auction sales performance during the coming months.
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Article info
14/10/2008
The view from the floor
As new business manager at Auction Finance Limited, Scott Hendry attends between 20 and 30 property auctions every month including sales held by some of the largest auction houses in the country. He talks to Estates Review about what has been happening in the nation’s auction rooms during the past 12 months
It’s incredibly difficult to make any generalisations about how the auction market is performing at the moment. In the midst of the credit crunch it is easy to become downcast when comparing auction results from this time last year, but after a traditionally quiet August some things I have witnessed in the past few weeks indicate that improved stability and activity might not be far away.
Changes for the better
The first half of 2008 saw London auctions driving the market whilst other regions suffered. The reasons for this were fairly self evident. The London auction houses have bigger sales with a national coverage and an established clientele of wealthy investors. Sales were stronger, both in terms of volumes and the prices obtained, and we frequently saw investors who had travelled to London for an auction losing out in the room simply because they weren’t prepared to bid up to the levels required. However, over the past six months, the disparity in performance between sales in the capital and those in the provinces has all but disappeared. For example, only last week I attended a small but established auction in the North West where the sale room was full and very active. This means that although in the earlier part of the year a motivated vendor may have done well to look to the London auction houses, there is currently a good argument for selling through a local sale room where the bidders are educated about the local market.
There are several factors that have contributed to this levelling of the playing field and the much touted rise in repossessions is one of them. Whilst repossessed properties would historically have found their way into larger auctions, the volumes that are now hitting the market mean that smaller auction houses are also picking up a quota. Although repossession is never something to smile about, auctioneers know that having repossessed properties in their catalogue is a good way to draw serious investors to a sale, and for most of them it is working.
Two other elements that have impacted on overall sales performance during the year and which are now showing signs of improvement are how vendors set their reserves and how auction houses set their guides. For too long a lot of private vendors at regional auctions were not prepared to accept that they couldn’t fix their prices at the same levels as late 2007. It has taken time for this trend to correct itself, but it’s beginning to happen. The fact of the matter is that even in the current market any property can be sold if the price is right and many auction houses are now being much more active when it comes to educating their vendors on what constitutes a realistic reserve price. It tends to be these auction houses whose results are leading the field and at auctions where private sellers aren’t setting sensible reserves the investors in the room quickly cotton on, favouring the repossessed lots that are more likely to be obtained for a good reduction on open market value.
As indicated above, Auction Finance Limited has seen a similar trend with regards to how auction houses handle guide prices. Whilst I personally never rely on guide prices as an indication of what will happen in the room, these are definitely becoming more realistic. There are still some sales where lots remain unsold despite bids coming in well over the guide, but these instances are much less prevalent than they were earlier in the year.
The funding issue
Now that some realism has returned and the auction rooms are once again looking like a good source of below market value property, the single most important issue that will continue to affect the market is the availability of refinancing facilities for those who are in a position to make acquisitions.
Shortly after the credit crunch hit it was the initial funds for completion that many investors struggled with. “Hunting Licences” (where a rapid draw-down facility is agreed by gearing against the equity in an existing portfolio) were never particularly popular with the banks and were frequently subject to reductions and withdrawals when the current economic difficulties began to surface. Even in circumstances where a facility could be agreed, the speed at which the funds were advanced suffered, meaning that they were often unavailable within the kind of timescales required for auction completions. Auction Finance Limited also encountered numerous auction buyers whose capacity to acquire new property was hampered by their reliance upon traditional mortgage products to provide the funds for completion, sourced either from high-street lenders or via finance brokers. When the reduction in the number of mortgages on the market began to gather pace this approach was no longer a viable option and it was not uncommon for us to receive panic calls from investors whose usual funding line had let them down at the last minute.
Committed investors have overcome these issues via the use of bridging/auction finance to provide the capital for completion but refinancing remains difficult for many, especially those who are buying well below market value and need to refinance at full market value within three months to maximise the profitability in their acquisition. Although there are still facilities out there for buyers with larger portfolios, our experience is that smaller investors and those with imperfect credit records find that their options are currently very limited. In a market where churning properties for capital gains is an incredibly risky business it is vital that these products are accessible in order to make deals workable and attractive.
Despite these difficulties, the auction rooms are becoming busier. The rise in repossessions and increased demand for rentals coupled with early indications that the housing market could be nearing a floor means that the serious investors are back in the room and taking an interest. Over the past few months we have started to receive funding enquiries from clients who went quiet at the beginning of the year and at sales throughout the country I’ve spoken with people who have said they are in the process of arranging funding lines and liquidising assets with a view to bidding heavily as soon as they think the housing market has bottomed out. Many auctions are much busier than they were several months ago, not just with spectators, but with people carrying paddles. This tells me they are registered and ready to bid, which bodes well for auction sales performance during the coming months.
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